UK DC pension fund charges comparatively low

By Jack Gray04/12/2018

Defined contribution fund charges in the UK are relatively low when compared to other developed countries, according to a new report from the Pensions Policy Institute (PPI).

Its study, Charges, returns and transparency in DC: What can we learn from other countries?, found that UK DC scheme fund charges are competitive with those in the U.S. and cheaper than those in Australia.

Furthermore, whilst Dutch and Swedish DC scheme charges appear to be competitive with the UK, they are typically more complex and with additional administration fees.

However, in the Netherlands, these additional administrative costs are paid for by the employer.

The report also noted the improved cost transparency in the Netherlands and its reported impact in reducing costs.

It highlighted that it sees current developments in the UK as moving in a similar direction.

Commenting on the report, PPI head of policy research, Daniela Silcock said: “Until recently, UK disclosure did not facilitate direct examination of how costs are changing as it does in the Netherlands or Australia.

“It may be important for all stakeholders in the UK market to have access to this data to manage outcomes better as scale grows in UK DC.”

The level of charges in the U.S. and Australia has been dropping by around 2 per cent a year, according to the PPI, and this suggests that as DC schemes grow so do the ‘economies of scale’.

However, the trend “to invest in cheaper, passive funds” may also be having an impact.

Silcock concluded: “The way in which economies of scale play out in the UK will be important to understand as part of the debate around value for money in DC pensions.”

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